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September 26, 2017

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Hon Hai head dealing with China fire aftermath

Terry Gou (郭台銘), chairman of consumer electronics conglomerate Hon Hai Group, flew to southwestern China yesterday to deal with the aftermath of a May 20 blaze that killed two and left 16 injured at a plant that makes iPads and iPhones for U.S. computer giant Apple.

Market Fears Bring Down Stocks

Stocks of Apple closed down 1.6 percent at US$335 on May 20 on fears that iPad production would be further affected after the seismic and nuclear disasters in Japan had shut down some of the production lines. Stock prices of Hon Hai and Foxconn Technology Group, the Hon Hai subsidiary that operates the plant where the incident occurred in Chengdu, Sichuan Province, were not immediately affected because the blaze happened after the market had closed. But they are expected to take a beating after the weekend when trading resumes on the market on Monday.

In a statement, the group said it would temporarily shut down the damaged production lines while cooperating with local authorities in their investigations into the cause of the accident. The group also offered assistance to injured victims who need medical treatment and want to contact their families.

The exact cause of the fire and explosions has not been established, but initial investigations have ruled out the possibility of foul play or human dereliction. Investigators are looking at the ignition of aluminum dust by sparks from an electrical switch in a polishing and finishing workshop as a possible cause of the disaster.

Production Capacities in Doubt

Production of the iPad will likely be affected because the plant, built last year in a record 76 days at a cost of US$300 million, produces two-thirds of the iPads sold worldwide according to one analyst, who added that the problem of not having enough production capacity to meet demand had come to light after the blaze.

However, according to other sources, the bulk of Hon Hai's iPad production capacity still remains in southern China.

Seeking to allay market fears, a Hon Hai spokesman said yesterday that the facility was minimally affected.

There are more than a dozen buildings, each with several floors, on the Chengdu campus, and the explosions were confined to only a single workshop on one floor, according to Hon Hai spokesman Edmund Ding (丁祈安).

Before results from the investigations are in, all talk about a broken link in the production chain is just baseless speculation, Ding said.

Hon Hai has more than one plant, more than one production campus and has production facilities in more than one country, Ding continued, adding that as such, the effect of the temporarily shutdown of a few production lines on output should be very limited.

Foxconn, which generally shies away from publicity, is the world's biggest contract manufacturer, making iPads and iPhones for Apple Inc. and other consumer electronics for companies including Sony Corp. and Hewlett-Packard Co., according to the Associated Press. The company's factories in China employ more than 920,000 people.

Aside from the Chengdu facility, Hon Hai also built another iPad production facility in Shenzhen, in China's Guangdong Province, last year. The group was said to be considering moving its Shenzhen facility to Chengdu, where labor is cheaper.

The group's iPad output was expected to hit 40 million units this year, but it declined to comment on the issue after the May 20 blaze in Chengdu, merely saying that the Shenzhen facility would remain the group's leading maker of iPads.

In Taiwan, prices of parallel imports of Apple products and those sold by unauthorized retailers soared after the blaze at the Foxconn facility in Chengdu.

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